UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2008 |
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to________________ |
Commission file number 000-50960
Integrated Pharmaceuticals, Inc.
(Exact name of small business issuer in its charter)
Idaho | 04-3413196 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
310 Authority Drive Fitchburg, MA 01420 | ||
(Address of principal executive offices) (Zip Code) |
(978) 696-0020 | ||
(Issuer’s telephone number, including area code) |
Securities registered under Section 12(g) of the Act:
Title of class | Name of Exchange on Which Registered |
Common Stock, par value $.01 per share | None |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes o Noo
APPLICABLE ONLY TO CORPORATE ISSUERS
As of March 28, 2008 the Issuer had 42,589,799 shares of common stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yeso Noþ
INTEGRATED PHARMACEUTICALS, INC.
FORM 10-QSB
TABLE OF CONTENTS
PAGE | ||
PART II. – FINANCIAL INFORMATION | ||
ITEM 1 | Financial Statements | 3 - 12 |
ITEM 2 | Plan of Operation; Management’s Discussion and Analysis | 13 |
ITEM 3 | Controls and Procedures | 14 |
PART II. – OTHER INFORMATION | ||
ITEM 1 | Legal Proceedings | 14 |
ITEM 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
ITEM 3 | Default Upon Senior Securities | 15 |
ITEM 4 | Submission of Matters to a Vote of Security Holders | 15 |
ITEM 5 | Other Information | 16 |
ITEM 6 | Exhibits and Reports on Form 8-K | 16 |
SIGNATURES | 17 |
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for statements of historical fact, certain information described in this document contains “forward-looking statements” that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will” and “would” or similar words. You should read the statements that contain these words carefully because these statements discuss our future expectations, contain projections of our future results of operations or of our financial position or state other “forward-looking” information. Integrated Pharmaceuticals, Inc. believes that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control. The factors listed below in the section captioned “Risk Factors,” within the section “Description of Business” as well as any cautionary language in this Form, provide examples of risks, uncertainties and events that may cause our actual results and achievements expressed or implied to differ materially from the expectations we described in our forward-looking statements. Integrated Pharmaceuticals, Inc. believes that before you invest in our common stock, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this Form could have a material adverse effect on our business, results of operations and financial position.
- 2 - -
PART I
ITEM 1. Financial Statements
Integrate Pharmaceuticals Inc.
Financial Statements
For The Quarter Ended March 31, 2008
(Unaudited)
CONTENTS
PAGE
4 | Balance Sheets As At March 31, 2008 And December 31, 2007 |
5 | Statements Of Operations And Income For The Three Months Ended March 31, 2008 and March 31, 2007 |
6 | Statements Of Cash Flows For The Three Months Ended March 31, 2008 and March 31, 2007 |
7 - 11 | Notes To Financial Statements – March 31, 2008 |
- 3 - -
INTEGRATED PHARMACEUTICALS, INC. |
(A Development Stage Company) |
BALANCE SHEETS |
31-Mar | Audited | |||||||
2008 | December 31, | |||||||
(unaudited) | 2007 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 90,658 | $ | 66,503 | ||||
Accounts receivable | 27,687 | 27,687 | ||||||
Inventory | 107,922 | 107,922 | ||||||
Prepaid expenses | 22,908 | 43,699 | ||||||
Total Current Assets | 249,175 | 245,811 | ||||||
PROPERTY AND EQUIPMENT, net | 620,084 | 754,737 | ||||||
OTHER ASSETS | ||||||||
Investments | 1,940 | 2,390 | ||||||
Deposits | — | |||||||
Patents, net of amortization | 100,645 | 102,123 | ||||||
Total Other Assets | 102,585 | 104,513 | ||||||
TOTAL ASSETS | $ | 971,844 | $ | 1,105,061 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 170,456 | $ | 155,852 | ||||
Accrued expenses | 84,500 | 113,482 | ||||||
Related party short-term debt | — | |||||||
Capital leases payable - current portion | — | — | ||||||
Total Current Liabilities | 254,956 | 269,334 | ||||||
COMMITMENTS AND CONTINGENCIES | — | — | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred stock, $0.10 par value, 20,000 shares | ||||||||
authorized; no shares issued | — | |||||||
Common stock, $0.01 par value, 75,000,000 shares | ||||||||
authorized; 22,553,106 and 18,632,626 shares | ||||||||
issued and outstanding, respectively | 436,103 | 422,449 | ||||||
Additional paid-in capital | 17,548,096 | 17,290,290 | ||||||
Other comprehensive income (loss) | (80 | ) | 370 | |||||
Accumulated deficit prior to development stage | (494,624 | ) | (494,624 | ) | ||||
Accumulated deficit during development stage | (16,772,607 | ) | (16,382,758 | ) | ||||
Total Stockholders' Equity | 716,888 | 835,727 | ||||||
TOTAL LIABILITIES AND | ||||||||
STOCKHOLDERS' EQUITY | $ | 971,844 | $ | 1,105,061 |
The accompanying notes are an integral part of these interim financial statements.
- 4 - -
INTEGRATED PHARMACEUTICALS, INC. |
(A Development Stage Company) |
STATEMENTS OF OPERATIONS |
Period from | ||||||||||||
February 1, 2003 | ||||||||||||
Three Months Ended | (inception of | |||||||||||
development stage) | ||||||||||||
March 31, 2008 | March 31, 2007 | to March 31,2008 | ||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||
REVENUES | $ | — | $ | — | $ | 173,399 | ||||||
COST OF GOODS SOLD | ||||||||||||
Materials and supplies | — | — | 113,484 | |||||||||
Total Cost of Goods Sold | — | — | 113,484 | |||||||||
GROSS PROFIT | — | — | 59,915 | |||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||||||
Depreciation and amortization | 65,706 | 65,844 | 981,397 | |||||||||
Research and development | 48,409 | 55,558 | 1,126,480 | |||||||||
Marketing | 2,025 | 355 | 641,428 | |||||||||
Legal and professional fees | 23,381 | 79,525 | 1,442,723 | |||||||||
Consulting | 59,359 | 3,193,448 | ||||||||||
Idle facility expense | 119,370 | 139,884 | 2,453,457 | |||||||||
Occupancy | 52,416 | 30,985 | 1,215,390 | |||||||||
Labor and benefits | 31,831 | 22,575 | 919,259 | |||||||||
Services paid by stock options | 2,850 | 2,850 | 1,494,423 | |||||||||
Office supplies and expenses | 4,059 | 7,255 | 201,422 | |||||||||
Travel | 1,315 | 770 | 185,704 | |||||||||
Other general and administrative expenses | 37,053 | 29,167 | 671,052 | |||||||||
Total General and Administrative Expenses | 388,415 | 494,127 | 14,526,183 | |||||||||
OPERATING INCOME (LOSS) | (388,415 | ) | (494,127 | ) | (14,466,268 | ) | ||||||
OTHER INCOME (EXPENSES) | ||||||||||||
Interest income | 2 | 2 | 10,285 | |||||||||
Interest expense | (1,436 | ) | (1,901 | ) | (1,433,645 | ) | ||||||
Other income (expense) | — | — | (5,560 | ) | ||||||||
Total Other Income and Expenses | (1,434 | ) | (1,899 | ) | (1,428,920 | ) | ||||||
LOSS BEFORE TAXES | (389,849 | ) | (496,026 | ) | (15,895,188 | ) | ||||||
INCOME TAXES | — | — | — | |||||||||
NET LOSS | (389,849 | ) | (496,026 | ) | (15,895,188 | ) | ||||||
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||
Unrealized gain (loss) in market value of | ||||||||||||
investments | (80 | ) | (870 | ) | 1,570 | |||||||
COMPREHENSIVE LOSS | $ | (389,929 | ) | $ | (496,896 | ) | $ | (15,893,618 | ) | |||
NET INCOME (LOSS) PER COMMON SHARE, | ||||||||||||
BASIC AND DILUTED | $ | (0.01 | ) | $ | (0.01 | ) | ||||||
WEIGHTED AVERAGE NUMBER OF COMMON | ||||||||||||
SHARES OUTSTANDING, BASIC AND DILUTED | 43,870,839 | 40,523,130 |
The accompanying notes are an integral part of these interim financial statements.
- 5 - -
INTEGRATED PHARMACEUTICALS, INC. |
(A Development Stage Company) |
STATEMENTS OF CASH FLOWS |
Period from | ||||||||||||
February 1, 2003 | ||||||||||||
(inception of | ||||||||||||
Period Ended | Period Ended | development stage) | ||||||||||
March 31, 2008 | March 31, 2007 | to March 31, 2008 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | (389,849 | ) | $ | (496,026 | ) | $ | (16,743,797 | ) | |||
Adjustments to reconcile net income (loss) to net cash | —— | |||||||||||
flows provided (used) by operating activities: | ||||||||||||
Depreciation and amortization | 134,653 | 137,988 | 2,020,957 | |||||||||
Loss on disposition of assets | — | — | 7,024 | |||||||||
Stock and warrants issued as incentive for notes payables | — | — | 496,389 | |||||||||
Stock issued for interest expense | — | — | 149,878 | |||||||||
Stock issued for rent expense | 998 | 7,298 | 616,577 | |||||||||
Stock issued for services | 2,612 | 21,221 | 1,212,124 | |||||||||
Stock issued for assets and securities | — | — | 43,739 | |||||||||
Stock options and warrants vested | 2,850 | 62,209 | 3,968,408 | |||||||||
Recognition of noncash deferred financing expense | — | — | 578,699 | |||||||||
Options and warrants issued for services and financing | — | — | 253,753 | |||||||||
Other Adjustments | — | — | (1,850 | ) | ||||||||
Changes in assets and liabilities: | ||||||||||||
Receivables | — | — | (11,603 | ) | ||||||||
Inventory | — | (1,641 | ) | (107,922 | ) | |||||||
Prepaid expenses | 20,791 | 32,169 | 117,794 | |||||||||
Other assets | — | — | 13,247 | |||||||||
Accounts payable | 14,604 | (98,623 | ) | 71,716 | ||||||||
Accrued expenses | (28,982 | ) | (37,435 | ) | (98,483 | ) | ||||||
Net cash used by operating activities | (242,323 | ) | (372,840 | ) | (7,413,350 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of fixed assets | — | — | (2,761,533 | ) | ||||||||
Patent costs | 1,478 | (2,815 | ) | (115,267 | ) | |||||||
Leasehold concessions received | — | — | 185,000 | |||||||||
Net cash used by investing activities | 1,478 | (2,815 | ) | (2,691,800 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Sale of common stock units | 265,000 | 24,500 | 9,033,140 | |||||||||
Payments on capital leases | — | — | (9,563 | ) | ||||||||
Proceeds from related party loans | — | (11,339 | ) | (56,701 | ) | |||||||
Proceeds from exercise of options | — | — | 1,080 | |||||||||
Proceeds from convertible debt | — | — | 939,900 | |||||||||
Net cash provided by financing activities | 265,000 | 13,161 | 9,907,856 | |||||||||
Net increase in cash | 24,155 | (362,494 | ) | (197,294 | ) | |||||||
Cash, beginning of period | 66,503 | 872,182 | 287,952 | |||||||||
Cash, end of period | $ | 90,658 | $ | 509,688 | $ | 90,658 | ||||||
— | ||||||||||||
SUPPLEMENTAL CASH FLOW DISCLOSURES: | ||||||||||||
Income taxes paid | $ | — | $ | — | $ | — | ||||||
Interest paid | $ | — | $ | — | $ | 25,000 | ||||||
NON-CASH INVESTING AND FINANCING: | ||||||||||||
Stock options and warrants vested | $ | 2,850 | $ | — | $ | 3,739,965 | ||||||
Stock and warrants issued for convertible debt | $ | — | $ | — | $ | 1,613,076 | ||||||
Stock issued for assets and securities | $ | — | $ | — | $ | 43,739 | ||||||
Stock issued as deferred incentive for notes payables | $ | — | $ | — | $ | 519,587 | ||||||
Stock issued for prepaid and deferred rent and rent expense | $ | 998 | $ | — | $ | 599,762 | ||||||
Stock and warrants issued for services | $ | 2,612 | $ | — | $ | 1,078,701 | ||||||
Warrants and options issued for deferred services and financing | $ | — | $ | — | $ | 520,102 | ||||||
Accounts payable paid by contributed capital | $ | — | $ | — | $ | 27,767 | ||||||
Noncash recovery of other income | $ | — | $ | — | $ | 1,850 |
The accompanying notes are an integral part of these financial statements.
- 6 - -
INTEGRATED PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY | |||||||||||||||||||
Accumulated | ||||||||||||||||||||
Common Stock | Additional | Accumulated | Accumulated | Other | ||||||||||||||||
Number | Paid-in | Deficit Prior to | Deficit During | Comprehensive | ||||||||||||||||
of Shares | Amount | Capital | Development Stage | Development Stage | Loss | Total | ||||||||||||||
Balance, December 31, 2007 | 42,505,005 | $ | 422,449 | $ | 17,290,290 | (494,624) | $ | (16,382,758) | $ | 370 | $ | 835,727 | ||||||||
Stock issued at an average of $.12 per | ||||||||||||||||||||
share in exchange for legal services | 22,363 | 219 | 2,393 | — | — | — | 2,612 | |||||||||||||
Stock issued at an average price of | ||||||||||||||||||||
$.06 per share in exchange | ||||||||||||||||||||
for rent expense | 18,471 | 185 | 813 | — | — | — | 998 | |||||||||||||
Shares issued to directors for services | — | — | — | — | ||||||||||||||||
Value of warrants vested during the period | — | — | ||||||||||||||||||
Value of options vested during the period | — | 2,850 | 2,850 | |||||||||||||||||
Stock and warrants issued for private | ||||||||||||||||||||
placement | 1,325,000 | 13,250 | 251,750 | — | — | — | 265,000 | |||||||||||||
Adjustment for employee options vested | ||||||||||||||||||||
but not exercised | — | |||||||||||||||||||
Unrealized gain on market value of | ||||||||||||||||||||
investment | (450) | (450) | ||||||||||||||||||
Other Adjustments | ||||||||||||||||||||
Net loss for the Period ended | ||||||||||||||||||||
March 31, 2008 | — | — | (389,849) | — | (389,849) | |||||||||||||||
Balance, March 31, 2007 | 43,870,839 | $ | 436,103 | $ | 17,548,096 | (494,624) | $ | (16,772,607) | $ | (80) | $ | 716,888 |
- 7 - -
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2008
NOTE 1 – BUSINESS ORGANIZATION AND BASIS OF PRESENTATION
Integrated Pharmaceuticals, Inc., (hereinafter, “the Company”) is the successor to Advanced Process Technologies, Inc. (hereinafter, “APT”) a corporation formed on March 23, 1998 under the laws of the Commonwealth of Massachusetts. In February 2003, the Company began a new development stage whereby it began the development of technologies for the production of clinically active pharmaceutical compounds, including active small molecules and recombinant DNA technology derived products. The Company was involved in contract research for pharmaceutical companies, through January 2003, when it changed its primary focus to the development of its own technology and manufacturing capacity.
On September 5, 2000, the Company agreed to an exchange of its stock in an acquisition with Bitterroot Mining Company (hereinafter “Bitterroot”). This transaction was accounted for as an acquisition and recapitalization of an operating enterprise by a non-operating public company. The legal entity is that of Bitterroot, while the accounting entity is the operating company, which had been APT. At that time, the Company acquired new non-qualifying shareholders and automatically converted from an “S” corporation to a regular “C” corporation. On November 28, 2000, the Company changed its name to Integrated Pharmaceuticals, Inc. As a result of this transaction, Integrated Pharmaceuticals, Inc. changed it state of domicile to Idaho, and operates as an Idaho corporation.
The company has raised additional capital through private placements in 2006 to continue its operations. Management plans to use the majority of the proceeds from the financing to implement its business plan. As a result of the proceeds received management has determined that it can continue as a going concern for at least the next twelve months.
At March 31, 2008, the Company was considered a development stage enterprise as it is devoting substantially all of its efforts to establishing a new business and substantial planned principal operations had not yet commenced.
The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10QSB and Regulation S-K as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited financial statements should be read in conjunction with the audited financial statements included in our annual report on Form 10KSB for the year ended December 31, 2007. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. Operating results for the three-month period ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.
- 8 - -
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2008
NOTE 2 – LIMITED SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.
Use of Estimates
The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
Development Stage Activities
The Company began a new development stage February 1, 2003, when it discontinued outside contract research as its primary focus. It is now primarily engaged in the development and production of clinically active pharmaceutical compounds, including active small molecules and recombinant DNA technology derived products.
Fair Value of Financial Instruments
Our financial instruments as defined by Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” include cash, accounts payable and accrued liabilities. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at March 31, 2008 and December 31, 2007.
In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 were adopted January 1, 2008.
SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are described below:
Level 1 - | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities. | |
Level 2 - | Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. |
Level 3 - | Prices or valuation techniques that require inputs that are both significant to fair value measurement and unobservable (supported by little or no market activity). |
The Company’s cash instruments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The cash instruments that are valued based on quoted market prices in active markets are primarily money market securities.
Inventory
The Company maintains an inventory of raw materials, work in process, and finished goods. Inventories are stated at the lower of cost or market. Cost has been determined by using the first-in first-out method. As of March 31, 2008, the Company’s raw material, work in process, and finished goods inventories totaled $63,674, $12,026, and $32,222 respectively.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets ranging from 5 to 10 years. The following is a summary of property, equipment and accumulated depreciation at March 31, 2008 and December 31, 2007:
- 9 - -
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2008
March 31, 2008 | December 31, 2007 | |||||||
Equipment | $ | 1,818,250 | $ | 1,818,250 | ||||
Furniture and fixtures | 120,114 | 120,114 | ||||||
Leasehold improvements | 826,511 | 826,511 | ||||||
2,764,875 | 2,764,875 | |||||||
Less: Accumulated depreciation | (2,144,791 | ) | (2,010,137 | ) | ||||
Total | $ | 620,084 | $ | 754,738 |
Depreciation and amortization expense for the periods ended March 31, 2008 and December 31, 2007 were $134,653 (of which $72,008 is included in “idle facility expense”), and $542,658 (of which $294,280 is included in “idle facility expense”), respectively. The Company evaluates the recoverability of property and equipment when events and circumstances indicate that such assets might be impaired. The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts. Maintenance and repairs are expensed as incurred. Replacements and betterments are capitalized. The cost and related reserves of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in results of operations.
NOTE 4 – CAPITAL STOCK
Preferred Stock
In November 2004, the Company amended the authorized capital stock section of its articles of incorporation. The Company is authorized to issue 20,000 shares of non-assessable $0.10 par value preferred stock. As of September 30, 2006, the Company has not issued any preferred stock.
Common Stock
In November 2004, the Company amended the authorized capital stock section of its articles of incorporation. The Company is authorized to issue 75,000,000 shares of non-assessable $0.01 par value common stock. Each share of stock is entitled to one vote at the annual shareholders’ meeting.
In January 2008, the Company sold 1,325,000 units for $0.20 per unit, raising $265,000. Each units consists of one share of common stock and a warrant to purchase an additional 0.35 shares of common stock. The exercise price of the warrants is $0.45 and they expire on Sept 30, 2009.
The Company has a lease for its facility in Fitchburg, Massachusetts whereby the base rent is paid with one share of common stock for each $1.00 of rent. A total of 18,471 shares, valued at approximately $1,050 were issued during the three-month period ended March 31, 2008 for payment of rent. Additionally, the Company issued 22,363 shares of common stock at an average price of $0.12 per share in exchange for services valued at approximately $2,600.
- 10 - -
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2008
NOTE 5 – COMMON STOCK OPTIONS AND WARRANTS
2002 Stock Plan
During the three months ended March 31, 2008, the Company recorded an expense of approximately $2850 for vested options.
The following is a summary of the Company’s equity compensation plans:
Plan | Number of securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options | Number of securities remaining available for future issuance under equity compensation plans | |||
Equity compensation plan approved by security holders (1) | 538,888 | $0.62 | 1,061,112 | |||
Total | 538,888 | 1,061,112 |
(1) Second Amended and Restated 2002 Stock Plan
Following is a summary of the status of the options outstanding during the periods ended December 31, 2007 and March 31, 2008.
Number of Shares | Weighted Average Exercise Price | |||||||
Outstanding at January 1, 2007 | 1,297,222 | $ | 0.55 | |||||
Granted | ||||||||
Exercised | — | — | ||||||
Rescinded | (475,000 | ) | — | |||||
Outstanding at December 31, 2007 | 822,222 | 0.62 | ||||||
Granted | — | — | ||||||
Exercised | — | — | ||||||
Rescinded/Expired | (283,333 | ) | — | |||||
Options outstanding at March 31, 2008 | 538,888 | $ | 0.62 | |||||
Options exercisable at March 31, 2008 | 534,088 | $ | 0.72 | |||||
Weighted average fair value of options granted in 2008 | — |
- 11 - -
INTEGRATED PHARMACEUTICALS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2008
Warrants
At March 31, 2008 and December 31, 2007, there were outstanding warrants to purchase 13,347,201 and 12,883,451 shares respectively, of the Company’s common stock, at prices ranging from $0.35 to $1.50 per share. The warrants vest at various rates ranging up to 5 years and expire at various dates through 2014.
NOTE 6 – CONCENTRATIONS
Credit Risk for Cash Held at Banks
The Company maintains its cash accounts primarily at a Massachusetts bank. These funds are insured to a maximum of $100,000. At March 31, 2008, approximately $ 0 was at risk.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Patent License Agreement
During 2001, the Company entered into a license agreement, with a related party, for the rights to a patent application. The Company may further develop, make, use, sub-lease, promote, distribute, sell and market the patent product or process. The Company is responsible for the expenses of prosecuting the patent application, which matured into an issued patent in 2002. In addition, a royalty of 3% of net sales, less discounts, is obligated to be paid on a quarterly basis for the license, with minimum annual royalties of $100,000, before discounts. During the periods ended December 31, 2007 and March 31, 2008, applicable royalties were waived by the patent holder.
NOTE 8 –SUBSEQUENT EVENTS
Subsequent to March 31, 2008 the Company raised $255,000 from various individual accredited investors. These investors purchased units consisting of a restricted share of the Company’s common stock and a warrant to purchase 0.65 shares of common stock, for $0.10 a unit. The warrants are exercisable at $0.35 per share and are valid until December 31, 2009. Those investors who invested $25,000 or more in this private placement and who also invested in the September 2007 Private Placement were granted a nine months extension of the warrants purchased in the September 2007 private placement, extending the expiration date of those warrants to June 30, 2010 from September 30, 2009.
- 12 - -
ITEM 2. Management’s Discussion and Analysis
ITEM 6. Management’s Discussion and Analysis or Plan of Operation.
The following discussion and analysis should be read in conjunction with the accompanying financial statements and the notes to those financial statements included elsewhere in this Form 10-QSB. The following discussion includes forward-looking statements that reflect our plans, estimates and beliefs and involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Form 10-QSB.
We generated no operating revenue during the first quarter of 2008 as we continued our transition from development stage production company to a consumer-product company utilizing our technology to launch a new bottled water product called HEALTHYCAL+™.
Plan of Operation.
In 2008, we will seek to begin selling in stores HEALTHYCAL+, our new bottled water beverage that contains 100% absorbable calcium and magnesium plus electrolytes, in the Northeast and the Mid West. A large bottling company, a bottle shape and size and a label have been selected. Several orders have been secured, and a distributor with 600 stores has agreed to carry our product. We will seek to expand distribution regionally in 2008 and nationally in 2009. We will explore in 2008 and seek to introduce in 2009 a children’s line of HEALTHYCAL+ water with and without flavoring. We may continue to sell our calcium powder to CAL-SAP™ and will seek to sell it to various other food and beverage businesses as an addition to their product(s). In 2008, we will explore the packaging of our powder as a stand alone product under our own brand. In 2009 we will seek to introduce a patented lactose free milk based yogurt product.
Initial bottling of HEALTHYCAL+ was delayed by the bottlers but we expect that bottles will be filled and sent out for FDA and State compliance analysis testing in the second quarter of 2008. Analysis should take approximately twenty days. A label has been designed for HEALTHYCAL+ and will go into print production in the second quarter of 2008. We expect production of our first labeled bottles by the bottler will be filled immediately upon receipt of the printed labels.
Financial Condition and Operations
Financial Condition.
In April 2008 we raised $255,000 in a private placement of our common stock. We anticipate that we will need to raise additional funds in 2008 in order to advertise, market, manufacture and distribute our bottled water and our calcium supplement products in 2008 and 2009.
Our short-term liquidity will be affected by our ability to raise capital. Our long-term liquidity will be affected by our ability to generate sales, which is subject to uncertainties. In addition, we are obligated to purchase our Fitchburg facility by September 2008. At that time, the purchase price will be approximately $1.75 million. We have not yet arranged for financing for this purchase. We have had initial discussions with the landlord about extending the lease, possibly under new terms.
Facility, equipment and software upgrades may be needed and some may be required to maintain the certifications necessary to produce our mineral powders in house especially as they relate to human consumption in food and beverage products. The costs of those upgrades and improvements are being researched and evaluated.
- 13 - -
Our capital needs for 2008 will depend upon the amount and mix of purchase orders that we receive (assuming that we receive such orders at all). Assuming that we generate some sales revenues by the third quarter of 2008, we should be able to pay for the cost of filling the orders out of our working capital.
There are no significant elements of income or loss that do not arise from our operations. Trends for increased sales-of and consumption-of bottled water and mineral-enhanced beverages appear to remain constant if not growing while environmental concern over plastic bottles is still high. We will continually look for more environmentally friendly ways to package our bottled water in 2008 and 2009. At the moment, there do not appear to be seasonal aspects to our business. The number of employees will remain approximately the same at this time.
Material Commitments for Capital Expenditures. We have no such commitments outstanding other than the obligation to purchase our Fitchburg facility for $1.75 million.
Trends and Seasonality. We are not aware of any trends that are likely to have a material impact on our liquidity, or on our net sales or revenues or income from continuing operations. We are not aware of any seasonality in our business.
Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements.
ITEM 3. Controls and Procedures
Disclosure Controls And Procedures
In connection with the preparation of our quarterly report on Form 10-QSB, an evaluation was carried out by Integrated Pharmaceuticals Inc.’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of Integrated Pharmaceuticals Inc.’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of March 31, 2008. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, Integrated Pharmaceuticals Inc.’s management concluded, as of the end of the period covered by this report, that Integrated Pharmaceuticals Inc.’s disclosure controls and procedures were effective.
Control Over Financial Reporting
During the three-month period ended March 31, 2008, there was no change in Integrated Pharmaceuticals Inc.’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or is reasonably likely to materially affect, Integrated Pharmaceuticals Inc.’s internal control over financial reporting.
PART II. – OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Company is not a party to any pending legal proceedings, nor is its property the subject of any pending legal proceeding.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
In April and May 2008, we raised $255,000 in a private placement of units consisting of common stock and warrants. Each unit sold for $0.10 per unit included one share of stock and a warrant to purchase 0.65 shares of our common stock. The warrants expire on December 31, 2010 and are exercisable at $0.35 per share. Those investors who invested $25,000 or more in this private placement and who also invested in the September 2007 Private Placement were granted a nine months extension of the warrants purchased in the September 2007 private placement, extending the expiration date of those warrants from September 30, 2009 to June 30, 2010.
In January 2008, the Company raised $265,000 in a private placement to accredited investors. The Company sold units consisting of common stock and warrants at a price of $0.20 per unit. A total of 1,325,000 units were sold. Each units consisted of one share of common stock and a warrant to purchase an additional share 0.35 shares of common stock. The exercise price of the warrants is $0.45 and they expire on Sept 30, 2009. The stock certificates for the 1,325,000 shares subscribed for at that time have not yet been issued.
- 14 - -
In September 2007, the Company raised $305,000 in a private placement to accredited investors. In this financing round, the Company sold 1,525,000 shares of common stock and warrants to purchase an additional 533,750 shares of common stock for a total purchase price of $305,000. The exercise price of the warrants is $0.45, and they expire on September 30, 2009.
In April, 2007, we issued 35,000 shares of common stock for a total price per share of $5,411 to Dutchess Private Equities Fund pursuant to our investment agreement with that fund.
In March 2007, we issued 267,192 shares of our common stock to our outside directors as compensation for services rendered in 2006.
In December 2006, during the second round of investment, the Company sold 17,096,002 units for $0.06 per unit, with each unit consisting of one share of common stock and 50% of a warrant to purchase an additional share of common stock, raising $1,020,265. The exercise price of the warrants is $0.35, and they expire on June 30, 2008.
In the second quarter of 2006, the Company completed a private placement offering of its common stock to accredited investors. During this first round of investment, the Company sold 3,425,000 units for $0.20 per unit with each unit consisting of one share of common stock and 40% of a warrant to purchase an additional share of common stock, raising $685,000. The exercise price of the warrants is $0.45 per share, and they expire on June 30, 2008.
In January 2006, as a continuation of the November 2005 financing round, the Company raised an additional $100,000 from investors. The Company sold 400,000 units for $0.25 per unit, with each unit consisting of one share of common stock and a warrant to purchase 80% of an additional share of common stock. The exercise price of the warrants is $0.90, and they expire on June 30, 2008. This financing was a continuation of the financing that occurred in the fourth quarter of 2005.
Also in November 2005 individuals that had invested during the first round of the private placement offering, received additional warrants. If they did not participate in the November 2005 private placement, they received a warrant for 20% of the number of shares originally purchased; and if they did participate in the November 2005 private placement, they received a warrant for 40% of the number of shares originally purchased. The exercise price of these warrants was $1.50, and they expired on December 31, 2007.
In November 2005, the Company sold 954,001 units for $0.25 per unit, with each unit consisting of one share of common stock and a warrant to purchase 80% of an additional share of common stock, raising $238,500. The exercise price of the warrants is $0.90, and they expire on June 30, 2008.
In May 2005, the Company commenced a private placement offering of its common stock to accredited investors. During this round of investment, the Company sold 1,044,166 units for $0.75 per unit, with each unit consisting of one share of common stock and a warrant to purchase 40% of an additional share of common stock, raising $783,125. The exercise price of the warrants is $1.50, and they expired on December 31, 2007.
ITEM 3. Default Upon Senior Securities
The Company has no senior securities outstanding.
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the first quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise.
- 15 - -
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K
The following documents are filed as exhibits to this Form 10-QSB:
Number | Description of Exhibit |
3.1 | Amended and Restated Articles of Incorporation of Integrated Pharmaceuticals, Inc. (1) |
3.2 | Amended and Restated Bylaws of Integrated Pharmaceuticals, Inc. (2) |
4.1 | Specimen Certificate for Integrated Pharmaceuticals, Inc. Common Stock, par value $.01 per share (2) |
4.2 | Form of Common Stock Purchase Warrant (2) |
10.1 | Amended and Restated Patent License Agreement with NEC Partners (2) |
10.2 | Lease Agreement with Chantilas Properties, LLC and Advanced Process Technologies, Inc. (2) |
10.3 | Assignment and Assumption of Lease(2) |
10.4 | Consulting and Warrant Agreements with James Czirr (2) |
10.5 | 2002 Stock Plan (2) |
10.6 | Registration Rights Agreement(2) |
10.7 | Letter dated May 5, 2005 amending the Patent License Agreement with NEC Partners (3) |
10.8 | Letter dated October 13, 2005 amending the Patent License Agreement with NEC Partners (4) |
10.9 | Investment Agreement between the Company and Dutchess Private Equities Fund, LP dated December 22, 2007 (5) |
10.10 | Registration Rights Agreement between the Company and Dutchess Private Equities Fund, LP dated December 22, 2007 (5) |
10.11 | Placement Agent Agreement among the Company, US Euro Securities Inc. and Dutchess Private Equities Fund, LP dated December 22, 2007 (5) |
14 | Financial Code of Ethics (6) |
21 | Subsidiaries of Integrated Pharmaceuticals (6) |
(1) Previously filed and incorporated by reference to Amendment No. 1 to the Company’s Form 10-SB Registration Statement filed with the Securities and Exchange Commission on December 3, 2004.
(2) Previously filed and incorporated by reference to the Company’s Form 10-SB Registration Statement filed with the Securities and Exchange Commission on September 27, 2004.
(3) Previously filed and incorporated by reference to Amendment No. 3 to the Company’s Form 10-SB Registration Statement filed with the Securities and Exchange Commission on May 12, 2005.
(4) Previously filed and incorporated by reference to the Company’s Form 10-QSB filed with the Securities Exchange Commission on November 14, 2005.
(5) Previously filed and incorporated by reference to the Company’s Registration Statement on Form SB-2 with the Securities Exchange Commission on January 26, 2008.
(6) Previously filed and incorporated by reference to the Company’s Form 10-KSB filed with the Securities Exchange Commission on September 29, 2005.
- 16 - -
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
/s/ Peter Featherston
By: Peter Featherston
Its: CEO
Date: May 20 , 2008
- 17 - -